Senate backs 'clean' energy loans

Proposal aims to develop coal and nuclear plants

By

StephanieI. Cohen

WASHINGTON (MarketWatch) -- A Senate panel on Tuesday proposed making billions of dollars in federal loans available to the power industry to fund a new generation of nuclear and clean-burning coal power plants.

The legislation crafted by Republican and Democratic lawmakers on the Senate Energy and Natural Resources Committee would allow the Bush administration to issue federally backed loans covering up to 80% of the cost of energy projects that "avoid, reduce or sequester" harmful greenhouse gases.

The committee will debate the language, which is included in a draft energy bill, on Wednesday or Thursday.

The provisions would give many of these projects a better shot at getting off the ground by easing the amount of capital they would have to borrow from banks or investors.

There is no cap on the amount of finding or the number of loan guarantees the administration can dole out.

President Bush is a strong advocate of both nuclear and less-polluting "clean" coal power plants, pushing them as a way for the U.S. to cut pollution and lower its dependence on energy imports.

Wall Street, however, has been unwilling to put up the money for new nuclear power plants without guarantees the projects will receive construction permits and eventually put power on the grid. The nuclear industry has pushed for loan guarantees and tax incentives to speed up development of these projects.

Sen. Pete Domenic of New Mexico, the Republican chairman of the energy committee, said the provisions are "probably one of the most innovative things" the committee has come up with to fund clean projects.

Sen. Lamar Alexander, R-Tenn., a member of the committee and supporter of clean coal technology, called the proposal an "ingenious and bold" effort to produce carbon-free energy.

But loan guarantees for nuclear power stations, included in earlier versions of the as-yet unsuccessful energy bill, have run into opposition from fiscally conservative senators opposed to subsidies for the industry and from public opponents of nuclear power.

Risk insurance

"It won't cost the government anything," Domenici said, describing the financial impact of the provisions on the federal government.

Domenici said the goal of the provisions is to ensure "risk insurance" in the event companies default on the loans, which would prevent tax payers from footing the bill.

Possible defaults would be covered from a pool of funds paid up front by borrowers based on a government assessment of the risk tied to each project, a Democratic committee spokesman said.

While the federal government may initially shell out hundreds of millions of dollars for some projects, the provision in the bill would be classified as budget neutral, the spokesman said.

Potential boon for nuclear, coal projects

The legislation would allow funding for new technologies like hydrogen and fuel cells and older technologies such as nuclear and renewable energy that have been "significantly improved."

The 104 licensed nuclear generators in the United States produce about 20% of the nation's electricity. But huge cost overruns and safety concerns raised by the 1979 Three Mile Island nuclear accident in Pennsylvania doused interest in new plants. The last time federal regulators granted a license to build a nuclear power station was in 1973.

Two groups of U.S. companies are already working to secure permits to build advanced nuclear reactors in the U.S. One group consists of Dominion Resources
D, +1.40%
General Electric Co.
GE, +0.79%
and Bechtel Power.

The legislation would also authorize loan guarantees for power plants that use "integrated gasification combined cycle" technology, a low-pollution coal combustion process that is just becoming commercially viable.

American Electric Power Co.
AEP, +1.35%
and Cinergy Corp.
CIN, +0.00%
have said they're moving in partnership with GE to build such a plant.

"Obviously a big beneficiary will be IGCC," the Democratic spokesman said.

The legislation would also allow loan guarantees to be given to automotive manufacturers seeking to retool their plants to produce hybrid vehicles, Alexander said.

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